Tag Archives: alimony

Before 2019, the payor deducted alimony on a federal tax return and the recipient paid taxes on it. Today, alimony is non-deductible and non-taxable in the manner of child support. However, there are strategies that can be used to minimize taxes while negotiating a settlement. For high net worth couples, these strategies include transferring retirement and taxable assets that will produce the income equivalent to the proposed alimony.

This article provides more details on these and other strategies which should be reviewed with a certified divorce financial analyst.

The Tax Cuts and Jobs Act of 2017 (TCJA) has eliminated the deductibility of alimony after December 31, 2018. It is expected that the loss of the payer’s tax benefit may have the effect of reducing alimony payment to the payee. This article proposes some options and drawbacks to consider relating to the TCJA, prenuptial agreements and estate planning.

Alimony or spousal support is common in divorces where the payee spouse may have lower or no earnings than the payor spouse. States use their own formulas for calculating the statutory spousal support. Additional facts and circumstances may affect the final amount, such as payee’s prospects for getting employed, variability of the payor’s income, etc.

Congress recently passed the Tax Cuts and Jobs Act. A provision in the Act will change the long standing tax treatment of alimony. In the past, alimony has been taxable to the recipient and tax-deductible to the payer. Starting in 2019, the recipient will pay no taxes, and the payer will not be able to deduct the alimony payments. In effect, the overall tax burden may be higher than under the existing tax treatment, which may result in less alimony for the recipient. This article provides more information and raises some additional questions.

By now, we have all heard bits and pieces of the sweeping tax plan proposed by Republican lawmakers. Interestingly, there is a significant provision that will affect divorcing couples. Whereas current tax law allows the payor spouse to deduct alimony payments and requires the payee spouse to pay taxes on alimony received, the proposed tax plan would eliminate the deduction to the payor and the taxability to the payee. In effect, the payor spouse would pay alimony with after-tax dollars. This provision would raise tax revenue in order to pay for other tax cuts. If the tax plan passes as proposed, the repeal of deduction for alimony payments would be effective for any divorce decree or separation agreement executed after 2017. This article provides examples of the effect on a divorcing couple.